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The financial crisis, ten years on

The financial crisis, ten years on

The bottom line is that with the hindsight of 10 years, key facts about the financial crisis of 2007-09 become clear. What started as a loss of liquidity in the markets for complex, opaque mortgage-related instruments, on 9 August 2007 led suddenly to the evaporation of funding liquidity for intermediaries holding these securities (or trying to use them as collateral). It happened then because the system was exceptionally fragile, leaving it vulnerable even to small disturbances. And, by then, since European banks had been active in these US markets, the problem was broadly international in scope (at least in Europe and North America). But, what made the crisis so deep and long – and so damaging to the global economy – was that the losses hit a financial system that was inadequately capitalised from the start. […]